Korea, Saudi Arabia, Central Bank Meetings, and More Data

November 7, 2017

Market Action:

  • The dollar rose overnight by 0.5% against the Australian dollar, 0.4% versus the loonie, peso and euro, 0.3% relative to the yen and sterling, 0.2% against the Swiss franc and 0.1% against the yuan. EUR/USD is at a 4-month low.
  • Stocks climbed 1.7% in Japan on Tuesday, 1.5% in Hong Kong, 1.0% in Australia, 0.9% in Singapore and 0.8% in China but dropped 1.1% in India. European share prices are trading lower.
  • Gold and oil dipped by a marginal 0.3% and 0.1%. Industrial metal prices are lower.
  • The 10-year British gilt yield slipped 2 basis points, while its German counterpart and the 10-year Treasury futures edged up a basis point.

Three central banks reviewed monetary policy:

  • The Reserve Bank of Australia’s Official Cash Rate was kept at 1.5%, a record low first reached after a cut in August 2016. RBA officials again warned that a stronger Aussie dollar may depress growth in output and jobs. Inflation remains below 2%.
  • The Monetary Policy Committee at the Central Bank of Sri Lanka left its deposit rate unchanged at 7.25% and lending rate at 8.75%. Those rates were raised by 50 basis points each in February and July of last year but not changed subsequently. The decision was taken despite accelerating inflation. Officials are also concerned about deficient growth.
  • The National Bank of Romania’s monetary policy rate was kept at 1.75%, its level since May 2015 when the last in a series of seven 25-basis point cuts was implemented. At the same time, the overnight deposit rate was raised 25 basis points and the lending facility rate was lowered by 25 bps in a continuing move to narrow the differential between them.

Geopolitical Developments:

  • The humanitarian disaster in Yemen intensified further. That country is under a Saudi-imposed blockade of air, sea and land routes, and the people there are starving.
  • From South Korea, U.S. President Trump, who previously rejected a diplomatic approach to containing North Korea’s nuclear arms development program, called on the North leaders to strike a deal with him.
  • It’s Election Day in America. This is an off-year with no congressional races. Governors will be elected in Virginia and New Jersey, and there are thousands of local races and voter propositions to be decided.

Released Data:

Euroland retail sales volume jumped 0.7% in September, most in at least six months, and such lifted the on-year increase to 3.7% from 2.3% in both July and August. The strong monthly result only produced a 0.6% third-quarter advance.

Euroland’s retail purchasing managers index fell back 1.2 points to a 2-month low of 51.1 in October. The German and French readings were at respective 3- and 2-month lows, while Italy’s retail PMI edged up 0.1 point to a 25-month high of 50.3.

The German and Australian construction PMIs posted 9- and 6-month lows in October of 53.3 and 53.2, respectively. Being above 50, the results imply positive growth but slower rates of improvement.

German industrial production dropped 1.6% in September, trimming the on-year rate of increase by a greater-than-forecast 1.0 percentage point to 3.6%. Production was 0.8% higher on average in the third quarter than in 2Q.

Britain’s Halifax house price index increased 0.3% in October, lifting its on-year rate of increase to an 8-month high of 4.5%.

Same-store sales in the U.K. according to the British Retail Consortium were 1.0% smaller in October than a year earlier. Same-store sales had posted year-over-year increases in each month of the third quarter.

Chinese international reserves only increased by $741 million last month after strong gains in both August and September. At $3.109 trillion, however, China’s stock of reserves is clearly the largest pile in the world.

Japanese labor cash earnings rose 0.9% on year in September but fell 1.0% in inflation-adjusted terms. Prime Minister Abe’s government, with a renewed mandate, is putting heavy pressure on companies to award substantially larger wage advances in next spring’s annual contracts.

In the year to October, consumer prices rose 1.3% in The Netherlands and 0.4% in Cyprus. Austrian wholesale prices went up 4.3%.

Factory output in Norway was 1.2% greater in September than a year earlier. Danish industrial production in the same 12 month period also rose 1.2%.

Retail sales in Italy climbed 0.9% on month and 3.4% on year.

The U.S. Labor Department’s monthly report on job openings, hires and separations arrives later this morning.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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